Navigating the UK tax system can be challenging, especially with frequent updates to rates, thresholds, and regulations. Whether you’re an individual, a business owner, or an employer, familiarity with these revisions is paramount for compliance and effective financial planning. This guide answers the most common questions about UK tax rates and thresholds for the 2025/26 tax year, providing clear and concise information to help you stay informed. From income tax and corporation tax to National Insurance and VAT, we’ve got you covered. Let’s dive in.
What are the UK corporation tax rates for 2025/26?
Businesses functioning within the United Kingdom are required to address corporation tax actively. For the 2025/26 tax year, the rates are structured as follows:
Small profits rate (19%): This applies to businesses with annual profits of £50,000 or less. This rate is designed to support small enterprises by reducing their tax burden.
Main Rate (25%): Businesses with profits between £50,000 and £250,000 are subject to the primary rate of 25%. Those within this bracket may also be eligible for Marginal Relief, which provides a tapered reduction in tax liability.
Primary Rate (25%) for profits over £250,000: Companies earning more than £250,000 annually are taxed at the full 25% rate without eligibility for Marginal Relief.
These tiered rates ensure that smaller businesses are not disproportionately impacted while larger corporations contribute their fair share.
How do UK dividend tax rates work in 2025/26?
Dividend income is taxed differently from other forms of income. The tax rates for the 2025/26 financial year are as follows:
Basic Rate (8.75%): Applies to dividend earnings between £12,571 and £50,270.
Higher rate (33.75%): Applicable to dividends ranging from £50,271 to £125,140.
Additional rate (39.35%): For dividend income exceeding £125,140.
These rates reflect the government’s approach to taxing investment income, ensuring that higher earners contribute a larger share.
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What are the UK income tax rates and brackets for 2025/26?
Income tax is a fundamental part of the UK tax system. The rates and brackets for 2025/26 are:
Here’s a breakdown of the tax bands:
- 0% Band: Up to £12,570 (This is covered by the Personal Allowance, so no tax is paid)
- Basic Rate: £12,571 to £37,701 (20%)
- Higher Rate: £37,701 to £125,140 (40%)
- Additional Rate: Over £125,140 (45%)
What are the mileage rates for 2025/26?
Mileage rates (Approved Mileage Allowance Payments, or AMAPs) let employees and self-employed individuals claim tax relief for business travel using personal vehicles.
Cars and Goods Vehicles: 45p per mile for the first 10,000 miles, reducing to 25p per mile thereafter. This gives the mileage allowance for cars and vans. For the first 10,000 business miles you drive, you can claim 45 pence per mile as a tax deduction. After 10,000 miles, the rate drops to 25 pence per mile.
Motorcycles: 24p per mile for all distances – This gives the mileage allowance for motorcycles, which is a flat 24 pence per mile, regardless of the distance.
Bicycles: 20p per mile for any distance travelled – This gives the mileage allowance for bicycles, which is a flat 20 pence per mile, regardless of the distance.
What are the National Insurance rates for 2025/26?
National Insurance is a necessary component of the UK tax system, used to pay for key public services such as healthcare and pensions. The rates for this contribution are fixed for the tax year 2025/26:
- The rate of Employer’s National Insurance Contributions (NICs) will increase by 1.2%, resulting in a new rate of 15%.
- The Employer’s NIC Secondary Threshold will be reduced from £9,100 to £5,000. These adjustments, combined with the rate increase, will lead to a heightened National Insurance burden for the majority of businesses.
- The Employment Allowance will be enhanced from £5,000 to £10,500, with the existing eligibility threshold of £100,000 being eliminated. All other eligibility criteria will remain unchanged.
- The thresholds for income tax and National Insurance, which are currently frozen, are not anticipated to extend beyond the 2028/29 fiscal year.
- Furthermore, the Employer’s National Insurance relief for hiring veterans has been extended for an additional fiscal year, continuing to provide support for businesses that employ veterans.
- The Lower Earnings Limit (LEL) and the Small Profits Threshold will increase by 1.7%, in line with the Consumer Price Index (CPI) rate from September, commencing in the 2025/26 tax year.
- Additionally, the Married Couples Allowance and Blind Person’s Allowance will be adjusted by 1.7% effective from 6 April 2025.
What are the UK VAT rates and thresholds for 2025/26?
For the tax year 2025/26, the UK utilises VAT, a tax on most consumer purchases. The amount charged is not uniform but instead changes based on the goods or services involved.
Standard rate (20%): This is the most common rate and applies to the majority of goods and services, from electronics to restaurant meals.
Reduced rate (5%): Certain items, like children’s car seats and home energy (such as gas and electricity), are taxed at this lower rate to make them more affordable.
Zero rate (0%): Essential items like children’s clothing and most food products are exempt from VAT altogether. This helps keep everyday necessities accessible to everyone.
What is the UK personal allowance for 2025/26?
The Personal Allowance is the amount you can earn before paying income tax. For 2025/26, it is set at £12,570. However, for every £2 earned over £100,000, the Personal Allowance decreases by £1.
What are the apprenticeship levy rates for 2025/26?
The Apprenticeship Levy applies to businesses with an annual payroll exceeding £3 million. These employers must make monthly levy payments calculated as 0.5% of their total pay bill.
Key details for the 2025/26 tax year:
Levy rate: 0.5% of annual pay bill
Annual allowance: £15,000 (deducted from total levy due)
Payment frequency: Monthly
Threshold: Applies to employers with pay bills over £3 million
Conclusion
Knowing how UK taxes work is essential for compliance and effective financial planning. The 2025/26 tax year brings several updates to rates, thresholds, and allowances, impacting individuals, businesses, and employers across the country. If you need assistance navigating these changes or optimising your tax strategy, our team of experts is here to help. Contact us today to schedule a consultation and ensure your finances are in order. Let’s make tax planning simple and stress-free for you.
